Facebook’s New Partnership – Tracking Purchases Made From Ads You See Online

In an attempt to give advertisers more information about the effectiveness of ads, Facebook has partnered with Datalogix, a company that “can track whether people who see ads on the social networking site end up buying those products in stores,” as The Financial Times‘s Emily Steel and April Dembosky explain. Advertisers have complained that Facebook doesn’t give them any way to see if ads lead to buying. This new partnership is their response. The service will link up the 70 million households’ worth of purchasing information that Datalogix has with Facebook profiles so they can see if the ads you see changes the stuff you buy and tell advertisers whether their ads are working.

Specifically, Datalogix gets its information from retailers like grocery stores and drug stores who use loyalty discount programs to amass careful records of what their customers are buying. Datalogix’s site doesn’t list its partners, but from a Google search, it looks like the company has worked with CVS’s Extra Care card program.

For Facebook, this would help address some of the shortcomings in the company’s business model. The selling point behind Facebook is that user activity — especially listing preferences and interests and “liking” brands, products or services — can be tracked, measured, studied, and presented to companies interested in advertising on the site. All that data can be used to paint pretty detailed portraits of the consumer habits of Facebook users, and companies can target highly optimized ads at Facebook users who are most likely to become customers. At least in theory.

But Facebook has had trouble quantifying exactly how much a Facebook “like” is worth in advertising terms, and companies have started to sour ever so slightly on the advertising potential of the site. Google, meanwhile, has taken a similar but slightly different angle, using data gleaned from searches and other Google tools to build intricate consumer profiles. By adopting combining its user behavior with other sources of consumer data, Facebook would merge both approaches somewhat.

Inherently, there’s going to be lots of tension in this. On the one hand, no one wants to a company, government agency or any other entity watching their every move — especially when it comes to highly personal issues such as medical purchases. On the other hand, Facebook and Google insist repeatedly that all the data they collect is used only anonymously. Indeed, the backlash they’d face if it was revealed that they’d been abusing the data makes it plausible that they’re serious.

Moreover, from an advertising perspective, the vast potential of digital advertising fueled by all this data is mind-boggling. Companies will be able to spend their advertising dollars far more efficiently and reach far more likely-customers. Take, for example, the online advertising concept called re-targeting, which can only happen if websites are allowed to track the activities of the web users who visit them. Here’s how it works:

You visit Warby Parker, the online glasses seller. You look at a pair of glasses you might like to buy. You decide not to buy them right then. You leave the Warby Parker website. Later, on other Websites, you see ads with the pair of glasses you liked.

You see those ads because when you visited warbyparker.com, your browser downloaded a tiny piece of software, called a “cookie,” that told the ad servers on sites using re-targeting that you had previously gone to warbyparker and looked at a certain pair of glasses.

Ads that are “re-targeted” in this way are clicked on a lot, and it’s pretty obvious why. Unlike most ads in banners on the Internet, re-targeted ads are ones that you may actually want to see because they are based on your demonstrated interest in a product.

The benefits of re-targeting for companies are obvious: Fewer ad dollars. More customers. A stronger bottom line. Moral concerns notwithstanding, it will become increasingly difficult not to take advantage of these tools when competing companies are thriving with them.